Unit Economics Metrics explained
The Unit Economics was born during the Dot-com bubble in the early 2000s.
Many entrepreneurs understood nothing about business models and monetization. Therefore, business communities offered a simple way to assess the viability of a future project - to calculate the profit per client.
We've created a demo Unit Economics for you to see how much you can earn with your dating project and what you need to do to reach those numbers.
Let's first talk about what everything means and then how you can use it:
Unit Economics Metrics
Period - we specify any period to calculate your goal: months, weeks, days, etc.
Overall users - we indicate how many users you have overall on your site and/or apps.
New users - how many users you need to attract within this month, week, day, etc.
С1 - your site/app first order conversion.
You can calculate it by simply dividing all of your users by paying members. E.g. you have 1000 overall users and 250 paying members this month, so your C1 would be 25%.
Buyers - how much paying members you have based on your site/app C1 and overall users.
Orders - how many orders you'll get based on the number of your paying members and their Average Payment Count.
AMPPU - Average Margin Per Paying User or how much you get from every paying member, including the expanses, COGS.
AvPrice - what's the average check on your site/app.
You can calculate it by summing all of your revenue for this month/week/day and then dividing it by the number of paying users. E.g. you've earned $3750, and you had 250 paying users. It doesn't matter how much every one of them payed, we simply divide 3750 by 250 and get $15 as your average check.
COGS or margin - your Cost Of Goods Sold or how much you get out of every dollar spent.
I.e. for every payment your users make, you pay a commission for payment gateway. Let's say you need to pay 35 cents from each dollar you get, leaving you with $0.65 and your margin will be 65%.
APC - Average Payment Count or the average number of purchases made by 1 paying member.
E.g. you have 100 paying users and 150 purchases within 1 month, so your APC would be 1.5.
CAC - your Customer Acquisition Cost or how much you spend to attract a new customer to your platform.
ARPU - Average Revenue Per User or how much ever user, and not not only paid ones, pay you on average.
E.g. you have 100 users and 50 paid ones, your total revenue is $500 and ARPU would be $5 while your average revenue per paying user would be $10 because we don't count it the free users here.
Revenue - everything you'll get without the expenses.
Gross Profit - how much money you'll get to your account, including the costs you've indicated in COGS part.
Acquisition Costs - how much you need to spend to get required number of new users with their specified acquisition cost.
Profit - how much money you'll earn excluding the acquisition costs.
How to use the Unit Economics
First, to get a reliable prediction for your business, you'll need to understand metrics and what they mean. Check the list above if you haven't browsed it yet.
To get your Unit Economics straight, you need to understand the metrics. You can either use the numbers we've put in the demo project or input your own metrics data if you have any.
When you input your data, you'll get your revenue numbers.
From here you can tweak the numbers for every metrics to see how would your profit change if you increase this or that metrics.
View our screencast to learn more about how to use it: